Questcor Pharmaceuticals Inc
(NASDAQ:QCOR) has had an impressive run on the charts in 2013, with its shares up more than 120%. However, since topping out at a record peak of $74.76 in late August, QCOR has been in a rut, down about 21%. Not surprisingly, investors have been increasing their bearish presence in QCOR's options pits, as they bet on a further decline, or protect their portfolios against one.
During the past 10 sessions at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 13,842 puts on QCOR, compared to 4,075 calls, resulting in a put/call volume ratio of 3.40. As a point of reference, this ratio stood at a call-skewed 0.61 one month ago. What's more, the current ratio ranks higher than all other similar readings taken in the past year, meaning traders are initiating long puts over calls at an annual-high clip.
In the front-month series, speculators have paid particular attention to October 40 and 50 puts
, where the majority of the 1,191 and 3,291 contracts that respectively reside here have been bought to open. Given QCOR's withstanding technical prowess -- and the deep out-of-the-money status of each put -- a portion of this activity could simply represent shareholders purchasing some options-related insurance
against a continued downtrend.
If this is the case, the investors were willing to pay a pretty penny for their hedges. Implied volatility at each strike is inflated relative to the security's 20-day historical (realized) volatility (113% at the 40 strike, 86% at the 50 strike vs. 52.4%). In other words, premium is rather expensive, comparatively speaking.
Outside of the options pits, sentiment paints more of a mixed backdrop. Short interest edged higher during the latest reporting period, and now accounts for 18.2% of the stock's available float. In fact, it would take more than eight sessions to cover these shorted shares, at QCOR's average pace of trading.
However, the brokerage bunch has remained upbeat toward QCOR, despite its recent consolidation. Not one of the analysts covering the stock believe the security to be anything less than a "strong buy." Plus, the consensus 12-month price target of $76.70 not only reflects expected upside of 29.7% to the stock's current perch at $59.15, but also uncharted territory. Should the stock continue to struggle, a round of downgrades and/or price-target cuts could apply contrarian pressure to Questcor.
This article by Karee Venema was originally published on Schaeffer's Investment Research.
Below, find some more great content from Schaeffer's Investment Research:
Daily Game Plan – Pure Dysfunction
The Government Is Shutdown. Now What Do You Do?
Analyst Upgrades: Micron Technology, Inc. (MU), VMware, Inc. (VMW), and Canadian Solar
No positions in stocks mentioned.